1. By this composite reference under Section 256(1) of the I.T. Act, 1961 (for short 'the Act)', the Income-tax Appellate Tribunal has referred the following question for the opinion of this court, arising out of the order of the Tribunal passed in ITA No. 268(Ind)/80 ITA (No.) 269 (Ind)/80.
2. Question arising out of the order in ITA No. 268(Ind)/80 :
'Whether, on the facts and in the circumstances of this case, the Appellate Tribunal was justified in applying a GP rate of 6% in the case of the assessee when as against the direction of the Government dated August 17, 1973, to charge a GP rate of 2%, the assessee had shown a rate of 3.4%?'
3. Questions arising out of the order in ITA (No.) 269(Ind)/80 :
'(1) Whether, on the facts and circumstances of the case, the Appellate Tribunal was justified in holding that no appeal lies against the order passed under Section 184(7) of the Income-tax Act, 1961 ?
(2) Whether, on the facts and circumstances of the case, the Appellate Tribunal was justified in law in holding that the ITO was not duty bound to afford opportunity to the assessee to explain the delay in filing the application for registration ?'
4. The material facts giving rise to the reference are as follows : The assessee is a firm and in the return filed by it, it disclosed a gross profit of Rs. 24,111 on total sales of Rs. 7,83,324 thereby giving a GP rate of 3.4%. The ITO held that the proviso to Section 145 of the Act was applicable and the gross profit rate shown by the assessee was rather low in the line of the business of the assessee ; more so, when in the assessment year 1973-74, in the case of the assessee the rate was taken at 7'5%, which was reduced by the AAC to 6%. The ITO, therefore, estimated the gross profit rate at 6%, and accordingly made addition to the taxable income of the assessee. On appeal by the assessee, the AAC maintained the order of the ITO. The further appeal preferred by the assessee was also dismissed by the Tribunal. At the instance of the assessee, the aforesaid question of law has been referred for the opinion of this court in I.T.A. No. 268(Ind)/80.
5. Now, in the question referred to us, the Tribunal has referred to the direction of the Government dated August 17, 1973, to charge a GP rate at 2% but we find that in the order of the Tribunal there is no reference to the direction of the Government dated August 17, 1973. From the order of the Tribunal, it does not appear that any such contention was raised before the Tribunal and the Tribunal has also not discussed the same. In regard to this matter the Tribunal held as follows :
'In the appeal against assessment the facts are that the assessee declared sales of Rs. 7,83,324 with a gross profit of Rs. 24,111 giving a rate of 3.4% for the assessment year under appeal, i.e., 1974-75. The ITO observed that in the preceding year, he applied a rate of 7.5%, which was reduced by the AAC to 6% and, therefore, even if 6% was applied, the profit would come to Rs. 22,887. He, however, estimated the extra profit at Rs. 25,000 and completed the assessment accordingly.
On appeal before the AAC, it was contended that the business was mostly on wholesale basis with a nominal margin. It was also pointed out that in the case of Shri Kishanlal Kamalkumar the book results had been accepted. The AAC observed that the position of the assessee's accounts was the same as in the preceding year and, therefore, the proviso to Section 145(1) was applicable. He further observed that the case of Shri Kishanlal Kamalkumar was not a comparable case nor was it quoted before the ITO. As a rate of 6% was applied in the immediately preceding assessment year and the same was confirmed in appeal, the AAC declined to interfere with the additions made by the ITO.
In the appeal before me the learned representative of the assessee vehemently contended that the proviso to Section 145(1) was not applicable in this case. He submitted that the ITO had not pointed out any defects and, therefore, the trading results should have been accepted.
On the other hand, the learned authorised representative of the Department submitted that the defects were the same as in the preceding A.Y. 1973-74, namely, the purchases and sales were not fully vouched and the trading results were not verifiable. He, therefore, submitted that the proviso to Section 145(1) was applicable and the rate of 6% was reasonable.
I have carefully considered the submissions of the parties and gone through the record. I find that in the immediately preceding assessment year the ITO had specifically pointed out the defects in the assessee's accounts, namely, that the purchases and sales were not supported by vouchers, and as such the trading results were not verifiable. Accordingly, the trading results were rejected for that year and a G.P. rate of 7.5% was applied. On appeal, the AAC reduced the GP rate to 6%, In further appeal, the Tribunal, vide order dated 25th August, 1977, in I.T.A. No. 382/Ind/76-77, held that the trading results were rightly rejected as the purchases and sales were not properly vouched. The Tribunal also approved the GP rate of 6% applied by the AAC. The position of accounts is admittedly the same in the year under appeal. Therefore, following the earlier order of the Tribunal, I hold that the trading results were rightly rejected by the ITO for the year under appeal. However, the addition made by the ITO at Rs. 25,000 is excessive. The ITO has himself stated that if the gross profit is charged at 6%, the addition would come to Rs. 22,887. In these circumstances, I direct the ITO to apply a GP rate of 6% to the declared sales and modify the assessment accordingly.'
6. As the Tribunal has not referred to the alleged Government order dated August 17, 1973, and has not dealt with the question with reference thereto, the question referred to does not arise out of the order of the Tribunal, We, therefore, decline to answer the said question on the ground that it does not arise out of the order of the Tribunal.
7. Regarding the questions arising out of the order of the Tribunal in appeal No. ITA 269 (Ind)/80 : The facts giving rise to these questions are as follows : The assessee was required to file a declaration in Form No. 12 along with the return which was due on July 30, 1974 : The assessee actually filed the declaration on January 1, 1976, and as such there was a delay of one year and five months in filing the declaration. No application was made by the assessee before the ITO for condonation of delay ; nor was any reason assigned for not filing the declaration in time. The ITO held that it was not for him to call for reasons for not filing the application for condonation of delay and since no such application was made by the assessee the ITO refused to condone the delay and held that as the assessee failed to comply with the requirement of Section 184(7) of the Act the continuation of registration of the firm could not be allowed. The AAC held that the appeal preferred by the assessee was not competent. On further appeal, the Tribunal upheld the order of the ITO on merits, and dismissed the appeal. At the instance of the assessee the Tribunal has referred the aforesaid questions of law for the opinion of this court.
8. Re. Question No. 1: The learned counsel for the Department conceded before us that this question is covered by two decisions of this court in Durgaprasad Rajaram Adatya v. CIT : 134ITR601(MP) and CIT v. Devilal Shankardayal : 140ITR413(MP) , in which it has been held that the order of the ITO dismissing the assessee's application for continuation of registration of the firm was appealable. In the latter case also, the ITO refused continuation of registration on the ground that the assessee filed the declaration form beyond limitation and sufficient cause was not shown by him for condonation of the delay in filing the declaration form. We, respectfully agree with the aforesaid decisions. Following the aforesaid decisions our answer to question No. 1 referred to us is in the negative and in favour of the assessee.
9. As regards question No. 2 the Tribunal confirmed the finding of the ITO on merits that the assessee filed the declaration in Form No. 12 after one year and 5 months and the assessee did not make any application for condonation of the delay in filing the declaration form. The assessee also did not disclose any sufficient cause for not furnishing the declaration form within time. On these facts the Tribunal held that the ITO was justified in refusing to condone the delay and in continuing the registration of the firm for the assessment year in question.
10. The learned counsel for the assessee was unable to point out that the view taken by the Tribunal is contrary to law. It was for the assessee to have satisfied the ITO that it was prevented by sufficient cause from filing the declaration, in Form No. 12, within limitation. The assessee having failed to do so, the ITO did not commit any error in refusing to continue the registration by condoning the delay in filing the declaration in Form No. 12. The learned counsel for the assessee was unable to point out that in the absence of any application by the assessee for a condonation of the delay, the ITO was duty bound to afford an opportunity to the assessee to explain the delay in filing the application for registration. Our answer to question No. 2 referred to us, therefore, is in the affirmative and against the assessee.
11. The reference is answered accordingly.
12. In the circumstances, the parties shall bear their own costs of this reference.